Sun shines on India's SpiceJet

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New owner Kalanithi Maran set to outline plans for Indian low-cost carrier shortly

The new owner of India's SpiceJet, who is buying a majority stake in the New Delhi-based low-cost carrier, is likely to decide on a name change and confirm a new chief executive by around the end of August.

Kalanithi Maran, who owns the Chennai-based Sun TV network, bought a 38% stake in the Indian carrier for 7.39 billion rupees ($158.2 million) in June through his privately-held vehicle KAL Airways from American equity firm WL Ross and the carrier's original owner Royal Holdings Services.

An open offer by Kalanithi for an additional 20% stake in the Bombay Stock Exchange-listed carrier closes in August. The Dubai-based investment house Istithmar has also sold a 6% stake in SpiceJet to investors after converting its foreign currency convertible bonds to an equity stake. However, it is not clear if KAL Airways bought Istithmar's stake.

SpiceJet is expected to name a new chief executive around the end of August to replace Sanjay Aggarwal, who resigned in early July after KAL Airways bought its initial stake and was replaced by board member Kishore Gupta on an interim basis.

 

The carrier could be renamed Sun Airways, says an industry source familiar with the deal, but that decision is likely around the end of September. Other sources add that there are unlikely to be drastic changes to the carrier's operations when a new management team is in place.

"The new board members have been identified and the officials from Sun are in the process of picking a new chief executive. They want to ensure that this is someone who has experience in the low-cost market, and especially with both domestic and international expansion," says a source familiar with the deal.

A second source adds that SpiceJet's focus on keeping its costs low, its successful marketing campaigns, high aircraft utilisation rates, and a gradual approach to expanding its network appealed to Kalanithi Maran. As result, he is unlikely to make any "dramatic changes" to the carrier's operations.

"Ultimately, he bought into SpiceJet knowing that it has a successful model and brand, especially in the competitive Indian market where well-run low-fare carriers will continue to make headway against the established full-service airlines."

SpiceJet boosted revenues 30% last year as it returned to profitability in posting a net profit of 614 million rupees ($13 million) for its financial year ending March 2010. This compared with the carrier's 3.53 billion rupees net loss in the previous year.

The carrier is also eligible to start flying on international routes, allowing it to increase its aircraft utilisation and focus on some high-yield routes that supplement its domestic network. A decision on the start date "will be made shortly", and the focus will be on nearby destinations like Colombo, Kathmandu and Southeast Asia.

However, Kalanithi Maran is also willing to help fund the carrier's expansion, especially its next round of aircraft purchases. SpiceJet officials have said that the carrier will stick to narrowbodies - the airline operates a fleet of Boeing 737-800/900s - but industry sources say that regional jets for short-haul domestic routes could be on the cards as well.

Read more on developments in the Indian market here